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Electricity | Waiting for the Waters of March


As the date draws near for the early renegotiation of generation, transmission and distribution concessions in the Brazilian electrical sector,  Jornal da Energia suggests that major players — including the state-owned Copel and Cesp and the privately owned Tractebel — will fare better in the stock markets than will companies that agreed to the renegotiation.

I cannot offer an authoritative translation of the article because I am still trying to catch up on my investor education regarding the ins, outs and bureaucratic tesseracts of the industry.

It does seem plausible that the state-owned companies refusing early renegotiation, the aim of which is to reduce electricity retail prices by 20%, represent political alliances acting in concert.

Copel, Cesp, and Cemig are all owned and operated governments of the opposition PSDB party. Their combined market share — my half-assed pie chart, above — represents a near-perfect counterweight to the federal Eletrobras.


Cemig is not, however, included in the list of higher performing concessionaires, and has demonstrated systematic seasonal volatility over the past 5 years — above, the company’s ADRs.

Translation: C. Brayton

Despite the crisis that has affected the electrical sector in recent weeks, Tractebel, Cesp and Copel may reap the benefits.

Market analysts say that the three companies should report an increase in revenue in their next quarterly reports, given the low level of hydroelectric reservoirs together with the expectation of reduced rainfall and the high volume of thermoelectric plants currently online.

In the case of Cesp and Copel, experts say that this positive impact will derive from the sale of energy in the spot market thanks to an elevated Liquidation of Differences Price (PLD), which reached R$550 in the second week of January and currently stands at around R$480. This indicator is expected to remain high in coming weeks.

Tractebel, in turn, will benefit from its sales strategy: it takes its thermoelectric plants offline when PLD is low — in this case, the company goes to the spot market for energy with which to honor its contracts —  and fires up its generation plants only when PLD is high enough to benefit from the Variable Cost per Unit (CVU).

This strategy has had a positive impact on the company’s shares on the BM&FBovespa. Between January 7, when rumors circulated of impending energy rationing, and January 15, Copel shares (CPLE6) rose 6.62%, from R$29.87 to R$31.85, while Cesp shares (CESP6) rose 8.6%, from R$ 18.74 to R$20.36. Tractebel (TBLE3) rose 9.31%, from R$32.30 to R$35.31. During the same period, the Electrical Energy Index (IEE), which measures the performance of listed companies in the sector, rose 2.75%, from 27,657 points to 28,428 pontos.

According to a team of analysts from JP Morgan, MPX and EDP Energias do Brasil should also feel the impact.  “MPX and EDP turn buyers on the spot market in order to stock up on the energy contracted for from the thermoelectric Pecem I, the initiation of whose operations has been delayed,” a JP Morgan expert said. The plant is due to begin operations in May 2013.

In comparison with the same prior period, MPX shares (MPXE3) lost 3,25%, from R$11.05 to R$10.69, while shares in Energias do Brasil (ENBR3) were up 4.65%, from R$11.61 para R$12.15, mirroring the performance of the IEE.

“Hydroelectric generators whose entire output is contracted for may be exposed to high prices on the spot market, wherea thermo plants could see extraordinary gains if thermo production exceeds the amount ensured,” says said Itaú-BBA, in a report entitoled “The Rain Dance”.

Beatriz Nantes,an analyst at Empíricus Research, says the worst of the recent crisis is already over.  “There was really no need to be so alarmist, because the risk of rationing was and is very, very low.  The climate has improved, and it is raining more, but this does not necessarily mean that PLD will not start to rise again,” she said.

You can see how the hold-outs may have seen an opportunity to leverage acts of God in their trading strategy. The expression here is “waiting for Saint Peter” — the keyholder of the celestial sluice gates.